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AHMSI sues LPS and DocX over 'surrogate' signing scandal

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[Update 2: Changes terminology from robo-signing to surrogate signing, and adds LPS comment] Lender Processing Services Inc. (LPS) and its DocX affiliate caused American Home Mortgage Servicing Inc. to lose millions from the surrogate signing of mortgage documents, a lawsuit filed Tuesday contends. Coppell, Texas-based AHMSI filed suit in a Dallas district court against Jacksonville, Fla.-based LPS alleging more than 30,000 residential mortgages across the country were affected by  "improper execution, notarization and recording of assignments of mortgage." LPS said it was "surprised" by the court filing. "LPS regrets AHMSI has resorted to litigation," the company said in a statement. "LPS has engaged in several discussions with AHMSI concerning the impact of the surrogate signing practice and has offered to reimburse AHMSI for fees and costs associated with AHMSI's evaluation and re-recording of the remediated assignments of mortgage," it said. The lawsuit comes on the heels of what AHMSI claims was an unsuccessful attempt to recover its losses during more than a year of talks with LPS. AHMSI said that LPS first promised to indemnify AHMSI, and then later claimed no duty to do so because the contract involved with the faulty assignments had already expired. But AHMSI contends the "defendants conveniently ignore that they created tens of thousands of assignments of mortgage and accepted hundreds of thousands of dollars in payment in accordance with the terms of a supposedly nonexistent contract." The lawsuit seeks a declaratory judgment that the contract between the parties is binding and an order compelling LPS and DocX to arbitrate AHMSI's claims of breach of contract and indemnification. It seeks an unspecified amount of damages, but puts the figure in the millions. "DocX prepared, executed and recorded lien releases, assignments of mortgage and related documents for AHMSI from April 2008 through November 2009," according to court documents. Certain DocX and LPS employees were appointed by AHMSI's board of directors as "special officers" of AHMSI with powers limited to executing mortgage-related documents, according to the mortgage servicer. "However, in late November 2009, LPS informed AHMSI that from March 2009 through October 2009, a substantial number of assignments of mortgage were executed by 'surrogate signers,' that is, by individuals who were not designated as special officers, but who signed in the name of one or more of the designated special officers. At no time did AHMSI sanction or know of the 'surrogate signing' practices of LPS and DocX," AHMSI said. The servicer said it terminated its contract with DocX after the revelation and conducted a 50-state remediation effort to correct affected assignments. "Defendants practice of 'surrogate signing' has forced AHMSI to address a myriad of legal issues, problems and proceedings in venues across the country," the lawsuit alleges. AHMSI is one of the largest mortgage servicers in the country. It manages nearly $72.5 billion in loan servicing, representing about 384,000 customers, the company said. In October, LPS said varying signature styles from its subsidiary, DocX, resulted from a DocX practice that has been discontinued and only affected two lenders/servicers, but did not identify those servicers. LPS said at the time that it had not executed affidavits with substantive information on behalf of its clients since 2008, and said it has been mischaracterized in the media in terms of its default-related services. Since then, LPS and DocX have been the source of several investigations. In April, Michigan Attorney General Bill Schuette said he would look into questionable mortgage documentation filed in the state's Register of Deeds offices, particularly those linked to DocX. Also in April, LPS signed a consent order with the Federal Reserve to settle a federal investigation into foreclosure practices at the firm and major mortgage servicers. LPS was required to boost oversight of its processes. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.

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